Surety bonds are company redlining
Laws require contractors to buy surety bonds on any public works project. Surety bonds are priced based on the wealth of the contractor. A rich business could pay as little as .3% of the project for a performance bond while a new first-generation business just as capable but without wealth could pay up to 3% -- 10 times more! On a $10M project to build a high school or a road, that's a cost of $30,000 for the rich company versus $300,000 for the new one.
A new law makes Illinois the national leader in reducing contractor redliningIllinois formally implemented the nation's biggest reform to contractor redlining in public works law. The General Assembly passed and Governor Pritzker certified on December 8th HB 2878. Part of the new law is a larger exception from the requirement that contractors purchase wealth-based surety bonds on public contracts. The law tripled the exception for local governments (from $50K to $150K) and increased it by ten times for IDOT and the Tollway (from $50K to $500K) - as of January 1, 2024 contracts under that amount no longer will require surety bonds.“The reality of surety bonds is that they disproportionately impact smaller, new businesses without existing business relationships,” said Cristina Castro, Chair of the Senate Executive Committee. “That’s not fair so we listened and acted to level the playing field so new contractors will have more opportunities to bid on jobs.”“We are leading the charge against redlining and paving the way for diverse contractors. This accomplishment is a national blueprint for progress. Here in Illinois, we’ve built and opened the road to fairness. This wouldn’t be possible without the Illinois Senate’s unwavering commitment to equality, and I’m proud of the work our caucus has done and the leadership provided by Senators Villivalam and Castro,” said Illinois Senate President Don Harmon.“Our goal is to advance equity in construction. Minority businesses have been at a disadvantage from the inequities of wealth-based barriers to economic growth such as buying surety bonds.” said Jacqueline Gomez, Executive Director of HACIA. “We are excited to bid on transportation projects in 2024 under $500,000 on a level playing field with very wealthy contractors who pay 10 times less for the same surety bond than our members.”Senate Bill 157 filed by Senator Villivalam and co-sponsored by Senators Peters, Fine, Hunter, Harris, Lightford and Castro would have raised the minimum contract value from $50,000 to $5,000,000.“I am grateful to all the stakeholders for their work on this vital legislation which will remove barriers for small businesses, many of which are women, veteran, and minority owned," said Senator Villivalam. "This legislation will help make our state more equitable and assist agencies in completing projects more efficiently."“We are over-insuring public contracts, leading to higher costs and locking out minority- and women-owned businesses from participating and growing, because insurance is priced on the wealth of the owner, not on his or her capabilities. Right-sizing insurance requirements like surety bonds will lead to more projects and more generational wealth for communities that need it the most.” said Representative Kam Buckner, who filed HB2482 that would have raised the contract exemption to $5,000,000.“Ensuring access for minority businesses is foundational for a stronger, better Illinois. Surety bonds have locked out entrepreneurs who have the ability and know-how but not the wealth to work on public works projects. This is unacceptable and I’m delighted we are reducing this contractor redlining this year.” said Speaker Emanuel “Chris” Welch.Jaemie Neely, Executive Director of the Federation of Women Contractors, applauds the General Assembly and Governor Pritzker for their groundbreaking reform on surety bonds. "The reform is poised to bring about cost savings in projects by doing away with an extra layer of redundant insurance in public projects. This will promote more opportunities for starting and scaling firms and, as a result, will create a stronger, diverse pipeline for public agencies." said Neely.HB2848 was the subject of an amendatory veto by Governor Pritzker on an unrelated provision of the bill. The General Assembly accepted the Governor’s amendatory veto in the fall veto session and final action occurred in December with the certification of the veto by Governor Pritzker. The law is effective January 1, 2024.
LOCKED OUT
The low bidder is the rich bidder, not the best company
The mandate to purchase performance bonds for public construction contracts locks out opportunities for newer, developing businesses without wealth.
level playing field
Pick contractors on ability not wealth
Equality of opportunity based on ability for contractors means minimizing mandates for performance bonds.
structural racism
Wealth is not evenly distributed by race
Black and Hispanic families and the businesses they own are far less wealthy than white families
